Your Credit Explained

When you apply for a loan for anything from a vehicle to a new home, most lenders look at your credit score to help decide whether they are comfortable with lending you money. Your score can give them confidence that you are likely to repay them in a timely fashion, or it may convince them that it is a risk they’d rather not take.

Even if you are approved for a loan, the interest rate you pay is likely to depend in part on your credit history. Those with excellent scores generally pay much lower interest rates than those with average numbers. And, people who score on the lower end of the “approvable” scale wind up paying higher rates. It’s simply a premium that lenders charge for the additional risk they incur when they lend to people with more unsteady track records.

One of the most important things to remember when it comes to credit: scores are based in large part on your financial history. Key elements, such as, how much debt you currently have and how well you’ve repaid loans in the past, make the difference between a “Yes” or a “No,” possibly incurring hundreds or thousands of dollars in additional interest.

If your score is lower than you would like, or lower than lenders would like, there are things you can do to improve it. For those with less than perfect scores, the numbers can change over time when your spending, saving and repayment behavior changes.

Here are some resources that can help explain credit and answer some questions you may have.